CRITICAL DIAGNOSIS INSURANCE


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CRITICAL DIAGNOSIS INSURANCE

• David R. Beard ASA MAAA CLU
• AVP Product Development
• EMC National Life Company

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Course Objectives

• Most Common Covered Illnesses
• History
• Concept of Product
• Alternative Product Designs
• Underwriting
• Rates
• Benefits
• Markets

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Incidence of Critical Illness

• About 1400000 new cancer cases are expected to
  be diagnosed in 2006.
• On average every 45 seconds someone in the
  United States has a stroke.
• About every 26 seconds an American will suffer a
  coronary event and about every minute someone
  will die from one.
• American Cancer Society. Cancer Facts and
  Figures 2006. Atlanta. American Cancer Society
  2006.
• American Heart Association. Heart Disease
  and Stroke Statistics 2006 Update.
  Circulation. Dallas American Heart Association
  2006.

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Survival Rates

• 70 Heart Attack Victims Survive At Least Three
  Years
• 75 Stroke Sufferers Are Still Alive One Year
  Later
• The 5-Year relative survival rate for all cancers
  diagnosed between 1995 and 2001 is 65.
• American Cancer Society. Cancer Facts and
  Figures 2006. Atlanta. American Cancer Society
  2006.

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Paying for Critical Illness

• 90 Dependent Upon Caregivers
• Savings And Borrowed Funds Subsidize Care
• Critical Illnesses Create Heavy Emotional And
  Financial Burdens

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Introduction and Facts About Critical Illness

• Harvard Law School Study February 2005
• Half of all bankruptcies in America stem from
  high medical expenses. Among those whose
  illnesses led to bankruptcy out-of-pocket costs
  averaged 11854 even though 76 had medical
  insurance when they fell ill.
• Wegner Jonathan. Critical Illness Policies
  Sell But Some Question the Need. Omaha World
  Herald 4 Jun. 2005 01D.

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Can You Survive Financially

• 33 of Families Deplete All Or Most Of Their
  Savings As A Result Of A Serious Illness
• 67 Of All Cancer Related Costs Are Indirect
  Non-medical Expenses
• Experimental Medical Treatments May Not Be
  Covered By Your Health Insurance

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History of Critical Diagnosis

• Dr. Marius Barnard of South Africa
• Concern About Financial Impact On Patients
• Concept Spread To United Kingdom Japan
  Australia
• Introduced in Canada And United States During
  Late 1900s

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Introduction of Critical Diagnosis/Illness
Insurance

• Critical Illness coverage was first offered in
  South Africa in 1983.
• More than 70 carriers in the United Kingdom offer
  Critical Illness with over 100 billion in sales
  since its introduction in 1987
• Over 500000 policies were sold in the first 10
  months available in Japan

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The Concept

• Upon Diagnosis
• What The Product Is Not
• Terminal Illness Rider
• Viatical Settlement

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Traditional Products Not the AnswerIf You
Survive!

• Disability
• of Monthly Salary
• Lengthy Waiting Periods - Executives
• Dependent Upon Ability to Work
• Long-Term Care
• Daily Benefit
• Hospital Stay or Home Nursing Requirement
• Accumulation Products
• Retirement

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Traditional Products Not the AnswerIf you
Survive!

• Life
• Intended for dependents/beneficiaries
• Not available if sufferer is alive
• Health
• Limited in scope/access (HMO-PPO)
• Portability at risk

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Product Design

• Rider Attached To Life Insurance Policy
• Health Policy And Riders
• Treatment Of Death By Policy Type

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Critical Illness Insurance

• Traditional life insurance provides financial
  security for your family if you die
• but not for you if you live.
• Now Critical Benefits Life provides both!

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Version 1.0

• 50000 Minimum Benefit
• 250000 Maximum Benefit
• Issue Ages 18-65 (age last birthday)
• Up to Table 8
• 20 Year Term Or To Age 70
• 50 and 100 Accelerated Death Benefit
• Waiver of premium accidental death and
  childrens term riders are available

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Covered Conditions (1.0)

• Heart Attack
• Stroke
• Invasive Cancer

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Covered Conditions (1.0)

• Terminal Illness
• Non-invasive Carcinoma - 10 initial benefit
• Paralysis
• Kidney Failure
• Major Organ Transplant
• Blindness

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Version 2.0

• 20000 Minimum Benefit
• 1000000 Maximum Benefit
• Issue Ages 18 - 65 (ALB)
• Up To Table 8
• 20 Year Term Or To Age 70
• 50 and 100 Accelerated Death Benefit
• Waiver Of Premium Accidental Death And
  Childrens Term Riders Are Available

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Covered Conditions (2.0)

• Loss of Independent Living
• HIV for Medical Personnel
• Coronary Artery Bypass Surgery - 25 Benefit
• Coronary Angioplasty - 10 Benefit
• Severe Burns

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Sample Annual Premium

• Male 45 NonTobacco
• 100000
• Term 493
• CI 50 976
• CI 100 1403

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Critical Benefits Example
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Version 3.0

• 20000 Minimum Benefit
• 500000 Maximum Benefit
• Issue Ages 18 - 65 (ALB)
• Up To Table 4
• 10 Year Term Or To Age 70
• 100 Accelerated Death Benefit
• Waiver Of Premium Accidental Death And
  Childrens Term Riders Are Available

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Covered Conditions (3.0)

• Advanced Stage Cancer
• Heart Attack
• Stroke
• Kidney Failure (End Stage Renal Disease)
• Major Organ Transplant Surgery
• Paralysis
• Blindness
• Severe Burns
• Terminal Illness or Death
• Occupational HIV Infection
• Early Stage Cancer (25)
• Coronary Artery Bypass Surgery (25)
• Coronary Angioplasty (10)
• Benefits are excluded under the Childrens
  Rider

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Covered Conditions (3.0)

• ALS (Amyotrophic Lateral Sclerosis or Lou
  Gehrigs Disease)
• Advanced Multiple Sclerosis (25)
• Advanced Alzheimers Disease
• Benefits are excluded under the Childrens
  Rider

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How Product is Underwritten

• Full Underwriting
• Large Lump-sum Benefits
• Detailed Health And Health-History Questions
• Examinations May Be Required
• Simplified Underwriting
• 100000 Or Less
• Short-Form Applications
• Physical Exams Not Required
• Accept Or Reject Basis

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Additional Considerations

• Morbidity vs. Mortality
• Financial Underwriting
• Individual vs. Worksite Markets
• Genetic/Family History Importance

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Industry Rate Structure

• Health vs. Life Product
• Policy vs. Rider Consideration
• Level vs. Increasing Premiums
• Guaranteed vs. Indeterminate Premiums
• Reinsurance Role

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Benefit Triggers

• 48 Worldwide Definitions Of Critical Illness
• NAIC Model Definitions
• Definitions And Analysis Of Main Illnesses
• Partial-Payment Considerations
• Payment In Event Of Death
• Waiting And Survival Periods

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State Compliance Issues

• NAIC Model
• Min Loss Ratios
• Max Guaranteed Rates
• ADLs
• Exclude Pre-Ex Conditions

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CI Benefit Taxation

• Not Clear
• 1099 LTC
• Ask Your Tax Advisor

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Potential Markets

• Disability Income Enhancement
• High Deductible Major Medical
• Lifestyle Adjustment Expenses
• Needs Analysis Solution
• Stay At Home Parents - Child Care
• Key Man Business Protection

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Sources of Additional Information

• Critical Illness Rider for Individual Insurance
  Wendy Lee FSA MAAA
• Actuarial Practice Forum January 22 2007 Volume
  1 Issue 2
• Gen Re Critical Illness Survey

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Questions